HM Revenue and Customs (HMRC) will refund around 3.2 million pensioners after discovering that incorrect state pension figures were used in some tax calculations, causing some retirees to pay more tax than they owed. The repayments will total around £19.3 million, with affected taxpayers expected to receive corrections automatically.
The average repayment is estimated at around £6 per person, although the amount will depend on each individual’s circumstances. HMRC said most people affected since the 2020-21 tax year will not need to contact the department because their tax records will be reviewed and corrected.
How The HMRC State Pension Tax Error Happened
The issue involved the way HMRC calculated the taxable value of the state pension when working out how much income tax some pensioners owed on other income, such as private pensions or earnings.
The error was first revealed by The Telegraph, which reported that HMRC had used incorrect state pension figures in some tax calculations. The mistake related to annual pension increases, which do not always begin on the first day of the tax year.
Under HMRC guidance, the taxable amount should often be calculated using one week at the previous year’s rate and 51 weeks at the new rate. In some cases, HMRC systems instead applied the new rate for the full 52 weeks.
This meant some pensioners’ taxable state pension income was recorded as slightly higher than it should have been, resulting in small overpayments of tax over several years.
HMRC Will Automatically Correct Affected Tax Records
The state pension is taxable, but tax is not deducted directly before payments are made. Instead, HMRC usually considers the pension amount when calculating tax due on other sources of income.
In a letter to the Treasury Select Committee, HMRC chief executive John-Paul Marks said the department would identify affected taxpayers and automatically correct their tax positions. Refunds will be made through PAYE tax code adjustments, credits to Self Assessment tax accounts, or other payment methods where necessary.
“If customers believe they were affected in earlier years and have the necessary evidence, they can ask HMRC to review their position. These requests will be considered on a case-by-case basis,” Mr Marks said.
“I am sorry that this error occurred and recognise the impact on affected customers.”
HMRC said it expects the majority of corrections and repayments to be completed during the 2026-27 financial year.
Credit: Shutterstock
Criticism Over HMRC’s Handling Of The Mistake
The error has raised concerns about the checks used in HMRC’s tax systems. Steve Webb, former pensions minister and partner at LCP, said the mistake showed the difficulty many people face when dealing with the tax system.
“It is hard enough for citizens to understand the tax system, but in this case it looks as though HMRC didn’t know its own rules,” Webb said.
“The trouble is, HMRC was pre-filling in people’s tax returns with the wrong figure, resulting in a small excess tax payment. If proper checks were done when these systems were set up, these errors would be spotted.”
“Instead there will have to be a huge bureaucracy to refund a few pounds each to millions of pensioners”.
HMRC Updates Systems To Prevent Future Errors
HMRC said it has already made changes to prevent the same issue from happening again. On August 25, the department updated its systems so future annual tax reconciliations for PAYE and Simple Assessment customers use the correct state pension figures.
HMRC said these groups represent the “substantial majority” of affected taxpayers. The department also planned to correct pre-filled figures for Self Assessment customers who had not yet submitted their 2025-26 tax returns during September.
Those who already filed their returns will have their records adjusted afterwards.
What Pensioners Need To Do About The Refunds
People affected from the 2020-21 tax year onwards should not normally need to make a claim, as HMRC will identify those taxpayers and update their records automatically.
The way refunds are received will depend on how someone pays tax. Some pensioners may see an adjustment to their PAYE tax code, while others may receive a credit through their Self Assessment account or another repayment method.
Those who believe they were affected before the 2020-21 tax year will need to contact HMRC themselves and provide evidence, such as previous tax calculations, pension statements, or other records showing how their tax bill was calculated.
HMRC is also carrying out an internal audit review into how the error occurred, and the department said it expects the majority of corrections and repayments to be completed during the 2026-27 financial year.
